Comerica Profit Falls as It Increases Reserves for Energy Loans

By Austen Hufford 

Comerica Inc. said profit fell by more than half in its first quarter as the Dallas-based lender increased its reserves for bad energy loans due to the prolonged slump in oil prices, though higher interest rates boosted revenue.

Per-share earnings missed analysts' expectations.

"Our first-quarter results were impacted by the current oil and gas cycle, as we significantly increased our reserve for loan losses," said Chief Executive Ralph Babb Jr. "While this approach resulted in a higher provision this quarter, our fundamental view of the energy sector has not changed significantly."

The regional bank reported a profit of $60 million, down from $134 million a year earlier. On a per-share basis, earnings fell to 34 cents from 73 cents. Revenue, a combination of net interest income and noninterest income, rose 4.2% to $693 million.

Analysts polled by Thomson Reuters anticipated 45 cents in profit per share on $709 million in revenue.

Comerica also said Tuesday that it hired a consultant group to help it undergo a "comprehensive review" of its expenses and revenues designed to identify "meaningful opportunities to enhance revenue, operate more efficiently and lower expenses."

Comerica does a chunk of its business in Texas and lends to many companies in the energy sector, which has been hit by sharply lower oil prices. The bank said it had $3.1 billion of energy-related loans in the quarter, versus total loans of $48.39 billion.

On Friday, Comerica said concerns over energy led it to set aside $724 million for loan losses, an increase from $601 million a year earlier and $634 million a quarter before.

Comerica had $681 million of loans classified as nonaccrual in the quarter, meaning there is uncertainty about whether they will be paid back on time. The bank reported about $266 million in nonaccrual loans in the year prior and $367 million in the previous quarter.

Net loan charge-offs rose to $77 million in the quarter, up from $23 million a year prior and $76 million in the fourth quarter.

Regions' net interest margin, an important measure of lending profitability largely tied to interest rates, came in at 2.81% in the March quarter, up from 2.58% in the quarter before and 2.64% a year prior. Higher yields on some loans, likely tied to the Fed's long-awaited rate increase near the end of 2015, helped increase net interest income by 3.2% from the prior quarter to $447 million. The bank said rising rates helped boost revenue.

Fee-based income declined in the quarter. Noninterest income fell 2.4% to $246 million in the first quarter as commercial lending fees declined.

Technology and outside processing costs drove noninterest expenses up 0.9% to $463 million.

Write to Austen Hufford at [e-mail]

(END) Dow Jones Newswires

April 19, 2016 08:30 ET (12:30 GMT)

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